ECON 214 InQuizitive Assignment 6 solutions complete answers

ECON 214 InQuizitive Assignment 6 solutions complete answers 

 

When aggregate demand increases, output and employment rise in the short run before returning to their initial values in the long run. Therefore, everyone is better off in the short run.

 

A small manufacturer, operating out of a rented space in a light-industrial area, produces inexpensive office supplies. Classify each aspect of the operation as an example of sticky input prices, menu costs, or money illusion.

 

Classify each event either as shifting the aggregate demand curve or as causing movement along the curve.

 

Recessions in the United States occur with regular, predictable frequency; hence the term “business cycle.”

 

You read a news article reporting that a nation’s real output fell while its inflation rate temporarily jumped up. From this you can conclude that the recession was likely caused by which of these scenarios?

 

Which of the following would result in a decrease in U.S. aggregate demand?

 

With the figure for reference, match each shift to the expected consequence on aggregate output (Y), the price level (P), and the unemployment rate (u).

 

Assume that an economy initially has a long-run aggregate supply curve corresponding to LRAS1 in the graph below. Click on the long-run aggregate supply curve that would most likely result if a new shipping method, using drone technology, made it easier to transport goods between any two locations.

 

Place the three components of aggregate demand in order of relative size, starting with the one representing the largest component of GDP.

 

There are three reasons for the downward slope of the demand curve: the wealth effect, the interest rate effect, and the international trade effect. Match each effect with the component of aggregate demand it most closely impacts.

 

Fill in the blanks to complete the following passage regarding firms’ short-run supply.

 

A simple model of a firm describes it as an entity that buys – (for example, labor) and sells – (goods and services). A firm’s input prices, which affect costs, are generally – in the short run, while a firm’s output prices, which affect revenue, are –. Therefore, an increase in the short-run price level raises revenue – than costs, so firms produce more in the short run. Consequently, the SRAS curve slopes upward.

 

Fill in the blanks to complete the passage about the U.S. unemployment rate.

 

Since 1985, the highest monthly unemployment rate in the United States was –; this happened in –. Following the recession of 1991-1992, GDP growth was generally strong, at one point exceeding 4% for four consecutive –.

 

Please attach the most appropriate label to the curve in the graph below. Note that the curve is perfectly vertical.

 

Complete the following passage concerning macroeconomics.

 

One branch of macroeconomics focuses on long-run growth and development, while the other branch focuses on –, which are fluctuations in –, typically over time periods of five years or –. One model that macroeconomists use to study these fluctuations, which are called recessions and expansions, is the – model.

 

Assuming the U.S. economy’s initial aggregate supply curve is LRAS1, label the other two curves with the event most likely to cause a shift to each curve.

 

A supply shock is by definition an abrupt change in supply that raises a firm’s production costs.

 

Consider the following graph. Assuming that the U.S. economy begins with an aggregate demand curve equal to AD1, click on the aggregate demand curve you would expect to see following a rise in the U.S. price level.

 

Consider the graph below, and assume that the U.S. economy initially has a short-run aggregate supply curve corresponding to SRAS1. Click on the SRAS curve that would most plausibly result if the Federal Reserve announced a plan to increase the U.S. money supply one year from now, and citizens responded by expecting higher prices in the future.

 

Consider the graph below. Assume that, initially, an economy has long-run aggregate supply corresponding to LRAS, short-run supply corresponding to SRAS1, and aggregate demand corresponding to AD1. Where will the new equilibrium be in the short run if political events cause workers to lower their expectations of future income? (Do not assume that all curves shown actually come into play.)

 

Match each of the following terms with the phrase that best describes it.

 

Suppose that a new technology, nuclear fusion, makes it much cheaper to generate power. Would this development cause a shift in the short-run aggregate supply curve (SRAS), the long-run aggregate supply curve (LRAS), both, or neither?

 

Put in chronological order the events that take an economy from its original long-run equilibrium to a new long-run equilibrium.

 

Which of these are conditions for long-run equilibrium in the aggregate demand–aggregate supply model?

 

What is the meaning of a leftward shift in the long-run aggregate supply (LRAS) curve?

 

Consider the graph below. Assume that, initially, an economy has long-run aggregate supply corresponding to LRAS, short-run supply corresponding to SRAS1, and aggregate demand corresponding to AD1. Where will the new equilibrium be in the long run if a virus renders a significant fraction of the nation’s computers unusable for two months before a fix is found? (Do not assume that all curves shown actually come into play.)

 

How do aggregate demand and aggregate supply differ from regular demand and supply?

 

Consider a situation where the residents of a major U.S. trade partner see an increase in their income. Assuming the U.S. economy starts in equilibrium, order the following time periods by price level, from lowest to highest.

 

This graph illustrates an economy, initially in long-run equilibrium, which then experiences a decrease in short-run aggregate supply (from SRAS1 to SRAS2). Label the two short-run equilibria (before and after the shift) with the appropriate relation between u, the short-run equilibrium unemployment rate, and u*, the natural long-run rate.

 

Complete the following passage concerning the history of U.S. recessions.

 

Since the beginning of the twentieth century, the United States has experienced –recessions. Of those, – have occurred since 1970.

 

Which of these are consequences of an increase in long-run aggregate supply?

 

Which of the following phenomena help explain why the short-run aggregate supply curve is sloped instead of vertical?

 

The U.S. economy’s initial aggregate demand curve is AD1. Drag each event to the curve that would result from it.

 

Consider the following graph. Assuming that the U.S. economy begins with an aggregate demand curve equal to AD1, click on the aggregate demand curve you would expect to see following a decrease in the value of the U.S. dollar.

 

Which of these scenarios would cause the U.S. short-run aggregate supply curve to shift to the left?

 

Which of the following are reasons the aggregate demand curve slopes downward, as shown in the figure?

 

Imagine that the U.S. economy has an initial unemployment rate equal to the natural rate of unemployment. Identify each event as a factor that will either increase or decrease unemployment in the short run.

 

Consider the graph below, and assume that Ireland's economy initially has a short-run aggregate supply curve corresponding to SRAS1. Click on the SRAS curve that would most plausibly result if technological improvements lowered costs of production in Ireland.